Encouraging strides in bank and credit union capabilities, confidence are offset by continued risk and compliance challenges

Wolters Kluwer today announced results of its annual Regulatory and Risk Management Indicator survey of U.S. banks and credit unions, showing that regulatory compliance and risk management concerns have collectively dropped for the first time in the survey’s four years, despite rising regulatory pressures. While the overall Indicator score remained unchanged from 2015, lower scores were tallied in indices measuring concerns in organizations’ ability to track regulatory changes, comply with regulatory requirements, and report on compliance to regulators. Risk management concerns also dropped from previous Indicator surveys.

The Indicator was conducted nationwide Sept. 9-22, 2016 and generated a record 846 responses this year, up from 539 responses in 2015.

“After years of steady increases, the diminution in anxiety levels this year is most encouraging, suggesting that banks and credit unions feel they are more effectively managing their risk and regulatory requirements despite a regulatory climate that has not eased,” said Timothy R. Burniston, executive vice president, U.S. Advisory Services and Regulatory Relations. “While the survey doesn’t measure why concerns have leveled off, a strong possibility is that respondents have been arming themselves with better tools, resources and programs to help navigate through the wide range of complex challenges they face.”

Respondents’ concerns over their organizations' ability to maintain compliance with changing regulations dropped from 73 percent last year to 66 percent in 2016; those concerned in demonstrating compliance to regulators fell from 71 to 64 percent; and concern over keeping track of changing regulations dipped nine points, from 72 to 63 percent. Anxiety about managing risk across all lines of one’s business dropped from 58 to 52 percent.

Burniston pointed to a five percent increase over 2015 results in organizations that reported having “an integrated or strategic risk management program.” He also noted that a majority of respondents, 78 percent, cited confidence in the ability of their organization “to manage a regulatory change such as TRID, HMDA or URLA,” and a nearly equal percentage, 77 percent, were “confident in their organization’s Compliance Management System.”

“While these are notable, positive changes from past results, we need to interpret these findings within the larger context of overall concerns expressed by respondents in managing regulatory and risk challenges facing their organization,” Burniston said, “especially given a regulatory environment in which the number of new regulations jumped 14 percent from 2015, and a supervisory enforcement climate where the amount of fines and penalties imposed increased 56 percent.”

To further illustrate this point, overall concern levels regarding new HMDA data collection requirements have dropped from 73 percent two years ago to 59 percent today, likely due to the fact that the content of the revised HMDA regulation has been released by the CFPB since that time. But concerns about implementing the new rules still elicits a relatively high level of angst. Respondents’ worries over accurately capturing new HMDA data fields (64 percent) remained unchanged from 2015 scores, and there was a six percent increase to 45 percent in those citing staff training as “a major concern.”

While 72 percent of respondents confirmed that their chief compliance officer has the ear of executive leadership, reporting directly to either the president/CEO or board of directors, 33 percent of respondents cited inadequate staffing, another 26 percent cited manual processes, and 21 percent cited competing priorities as major obstacles to effectively implementing their compliance programs.

Among other key findings, cybersecurity was cited as among the top risks anticipated in the coming 12 months with a 70 percent score, followed by regulatory change management (38 percent) and, in a tie for third at 34 percent, fair lending as well as third-party risk. Regarding fair lending examinations, 41 percent perceived “modest to significant increases in regulator scrutiny,” whereas 29 percent felt regulatory scrutiny was the same as in 2015.